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This report from the CBS 4 web site provides a snapshot on Florida’s housing market. This factoid says it all: “At the current sales pace, it would take nearly three years to sell all the condominiums on the market. For single-family houses, it would take almost two years.”
Given that overhang, it seems inevitable that prices decline. By how much in Florida, I don’t know (readers from south Florida, feel free to post your best guess here). Looking more broadly, Steven Krystofiak, the president of the consumer advocacy group the Mortgage Brokers Association for Responsible Lending, predicts that housing prices nationally will tumble between 5% and 10% from current levels by year’s end and to extend those declines to between 15% and 20% by the end of 2008. Krystofiak’s prediction is scary, and may be influenced by the fact that he probably deals day-in-and-day-out with distressed borrowers who are having to sell their homes at fire sale prices or are being foreclosed upon.
Yale economist Robert Shiller, whose book Irrational Exuberance accurately predicted the popping of the Internet bubble, predicts a slow bleed: According to this report in this week’s Barron’s (paid registration may be required to view article), Shiller still expects a “cumulative 20% to 30% decline in nominal (non-inflation-adjusted) prices over the next five to 10 years. In other words, the slide is unlikely be sudden; prices could fall instead by, say, 2% annually for 10 years.”
If home prices do decline—be it quick or even slowly over 10 years as Shiller predicts—I think there are going to be many consequences, including some that few of us are thinking about. I’ll now circle back to Florida, where the housing boom lifted property values—and property tax assessments. As this story in the Bradenton (Fla.) Herald reveals, increases in property-tax revenues since 2000 have been dramatic: 178% for Miami-Dade County, 123% for Fort Lauderdale, 82% for Broward County and 108% for Miami, at a time when government income from other sources grew far slower.
That gravy train enabled local governments to increase spending: In Miami-Dade, the county’s 30,000 employees received an average salary increase of 29% between 2000 and 2006 — while the inflation rate rose about 18%, according to the story. What happens if prices – and assessments – turn negative?
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.